The Government circulated draft of the GST Model Law requesting for suggestions from the industry. The industry and experts have been poring over the draft. The article seeks to highlight the need to reconsider one of the provisions related to input tax credits. The proposed GST Legislation appears to deny tax credit in relation to input services for which payments are made after three months of the date of the invoice of the supplier. In fact the proposal mandates payment of interest in addition to the denial of credit in foreign company registration in India.
Also, under the current legislation, customer can re-claim the credit reversed earlier on making payment against the invoice. However, a similar provision is missing under GST and consequently may result in permanent loss of input credit of tax paid earlier in tax consultancy firms in Delhi.
It appears that this proposal was inserted to mitigate benami transactions. This anxiety is clearly misplaced for several reasons: A) The compliance prescribed under the GST regime requires every person making a supply to upload transaction wise details on to the GST network and input tax credits are available to purchaser only where the tax as reported by the supplier is actually deposited. B) Any supplier charging tax would need to necessarily register and report the transactions. The Government will have all the information and can identify and pursue any suspicious activity. C) The proposal mandating effective reversal of credit and imposing interest actually is double taxation on the same service. Given that the supplier has already paid tax and the amount equivalent of credit taken is sought to be recovered from the customer, will clearly result in cascading tax. While the intention to curb abuse is laudable ¬ penalising the whole industry is daunting.
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